Give the entire box a really good rub down with the fine grit sand paper. Don’t skip this step! The finish of the box really depends on the smallest effort sanding at first and in between steps.

Cut out the template and tape it to the box. Trace around the outside of the template with a pencil.

If you're not leaving the wood natural, use a small brush to stain (or paint) around the box outside the outline. It’s not a big deal if the stain bleeds a little or if there are a few slip-ups. Paint can cover any goofs.

Stain the rest of the box inside and out. You can switch to a bigger brush here if you want. Let it dry.

The next step is to transfer the template illustration onto the box. You can use carbon paper or something similar, but what I do doesn't require anything but a regular old pencil.Just scribble all over the back of the stencil.

Flip it your template right-sides-up and re-position it in the unstained portion of your box. Secure with some masking tape.

Using a mechanical pencil or ballpoint pen, trace over the image. Use firm pressure, but its not necessary to press into the wood.

The graphite from the pencil scribbling on the back of the paper will transfer onto the box. (I’ve upped the contrast on the photo here so you could see it. The transfer is not usually this dark, but good enough to see the illustration to paint it.)

Start painting! I usually start in the background and work my way into the foreground. In general, the farther back forms should be darker. When everything is painted to your satisfaction, let it dry for a good while… like overnight.

Give everything a light sanding. I know it seems counter-productive to sand your lovely painting job, but this really makes the final finish look smooth. If you’re using acrylic paint, this will get rid of any ridges that the brush strokes leave in the paint.

Use a fine black marker to outline the illustration.

Add in texture and shadow with cross-hatching.

As the final touch, I use a fine brush to add white highlights to the eyes.

Give everything a couple coats of polyurethane (sand between coats) to seal it. Now you have a keepsake box worth keeping!